Colywobbles

I've started to lose my nerve. Only a bit, and it was the result the sudden fall in the gold price. It should not have come as a surprise because it has had several failed attempts at the $1800 level. The silver price has followed. I snatched profits as the fall began. By then the various mining stocks were wobbling. I was too late to grab profit except in LMI where I managed to take 4% accumulated since Feb 7. I've held onto the remaining miners where there is a reasonable chance of recovery since they do not specialise in precious metals.

Last night I threw in the towel on ALVR where I was nursing a 15% loss. As ever you tend to give up just as the bottom has been reached and today we see a small recovery. Makes you want to spit.

With less pressure on my cash I have bought some more from my patented strategy filter. I bought VP. BMY and upped my stake in LAM. ISA's don't let you buy AIM shares and I still don't have sterling cash to spend in my SIPP. As a result I've had to give the AIM shares that came up as candidates a miss till I can free up some more cash.

Back to the panic. The DJI is stuck. It's hovering just above a resistance line and if you add in the days it hovered below it has been sitting there for a month. Will it make the break or is 12875, the high reached last May, going to be a step too far. Yesterday it closed above the 13000 mark and it keeps nudging that level but it needs to move convincingly above it before I will feel confident that resistance has been broken. I wonder if that fall in the precious metals price is a break in the link between gold and Dow. I've just put my money on that bet. But I'm nervous as I walk away from the bookie's counter.

Busy days

Since the last week in January I have been active. I have gone from a portfolio that was half empty to one that has almost no cash. I have a rump of my gold and silver, which is doing very well and represents 9% of my portfolio. I still have that position in cattle which is languishing. I had the opportunity to take a small profit a few days ago but didn't and am now showing a small loss. A big part of the problem here is currency loss. I shall not keep this much longer.

78% of my portfolio is in equities some doing well and some doing badly. In the UK I have three strategies.

• The first looks for shares that have a low prospective pe ratio; a high prospective earnings per share; positive revenue growth; have out-performed the market in price movement and that out-performance is accelerating; they must generate cash flow more quickly than earnings. Picking shares on that basis has generated a profit of over 4% in  a week.
• The second is my surfing strategy which I have been running for about a month, this has generated just over 3% in a month with most of the profit realised
• Finally I seek out high valued stocks in growing sectors and these have generated 1.8% in about three weeks 

I am happy with these returns since the bulk of the profits were made in a period when the market went up by less that half a percent.

I also did well in Hong Kong where I sought out shares with a decent value profile but which had suffered a collapse in price. Here I made almost 3% in a little over a week while the market made 1.5%.

The big disappointment was the US where I looked for  high valued stocks in growing sectors and for small cap stocks that have suffered bad price reversals and they have left me with a loss of 9%. I am holding on because these selection strategies have worked well in the past through thick and thin. If they do not start to perform I will have to do a serious debrief to see what went wrong.

Using my surfing strategy in the US was also a failure. I lost about 1.5% in a month.

Today's graph shows how my surfing strategy works at its best. I look for shares that are trending upwards - shown by the middle blue line. I then pick those which are at or near the bottom of the channel representing a movement of 1.5 standard deviations (the dotted blue lines). I like to see a high percentage movement back up to the trend line. In this case it was 9%. I bought at 125 on 25th January and sold at 133 to realise a 5% profit after costs in ten days. I could have held on to the top of the channel but I had no way of knowing it would get there - it did not before. I think I am happy with this type of trade and will increase my stake to reduce the impact of costs

Comments

Red line represents 200 day MA

I am delighted to have had a couple of comments from readers. The topics are moving averages; and how to get on top of this trading business. In response to the latter I recommended two books which were instrumental in getting me going on a largely successful path many years ago now. (See last post)

I like Richard Koch's book because it gets you to look at yourself and choose an investment style that matches your personality. For me the best approach was finding value shares. Jim Slater's Zulu Principle was invaluable in getting me going on that road. Benjamin Graham has written several more advanced books on the same topic.

Going back to moving averages, Terry showed interest in moving average crossovers as signals for getting in and out of trades. I did a quick test on Unilever and found that simple MA xovers would have lost money consistently. (details in the comments on the last post).

I mentioned that I almost always show a 200 day moving average on my charts. I don't use this as a signal but as a guide to where the instrument I am looking at is going. 200 day MA above the price indicates a downtrend. A big and growing gap suggests that there is a good chance that a recovery in price is likely in order to narrow the gap. In an uptrend the opposite is true.

Red line is 200 day MA

Today's chart is chosen to show the value of the 200 day MA. I've chosen IRobot Corp. A share which I bought because it had demonstrated a big fall from its trend. It had just announced excellent results for the past year but had also issued a profits warning for the fallowing quarter and year. I bought it on 21 February several days after the big gap down and when some recovery had already taken place. It is a risky trade because there is nothing to guarantee a recovery, but a potentially profitable one. A recovery to the top of the open on the first day following the profit warning would represent a 12% return. The share price dove through the 200 day MA and there was what looked like mass panic. A classic opportunity to make money as wiser heads begin to prevail and see that the market fall has been overdone.

Looking at the second chart we can see that the 200 day MA has been a helpful guide for the past 5 years with consistent price movements that demonstrate that the MA acts as a magnate for the price, always pulling it back when it strays too far. I don't know if you find this helpful. I do but I do not see it as a reliable signal. Choosing your entry and exit point is a matter of judgement. Hope that helps Terry. Remember I recommend nothing. I just point shares out that might be of interest.

Laid low

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Laid low by a cold for the past couple of days.  Since Monday was a holiday in the US the interesting action happened yesterday.

The DJI remained above the resistance level that was established by a price peak back in May last year.  But the movement in the market remains steady and subdued on a day to day basis. It is amazing how hard I find it to pick up on a change in the mood of the market and respond appropriately. I have completely failed to respond to the smooth upward trend which emerged in December, hugely to my cost in missed opportunity. I now am fearful that my response is too late. This feeling is not helped by the fact that my share picks have been poor. So, even now that the market is still bowling along my returns are dismal.

No point in bleating about this. I am making some money and these periods when nothing you do goes right happen from time to time. It's just a case of being strong and holding on for the moment when luck returns. In the mean time you just keep going and checking to see whether perhaps there is something you have missed and could be doing better.

In the mean time I have taken profits on PG and VZ in the US, both meagre. In the UK on WEIR, decent.
I have filled my boots with HK shares 3360 410 1128 1068 and 2342 - so far so good. These were purchased on the basis of decent quality shares that had been beaten down.

I am also in the process of buying battered shares in the US that I plan to hold for a week. More news about these in my next post.

I have had two comments and have been delighted to reply to each one. Ian recommended MA crossovers as a method for getting in and out of shares. I tested Unilever and found that they were too slow as signals for getting in and out.

Dave wants an understanding of this trading business and I have recommended two books:
Jim Slater's The Zulu Principle and Richard Koch's Selecting shares that perform.

Conflicting signals

A short post today. Tomorrow is President's Day and the US market is closed. It left us on Friday with conflicting signals. On the one hand it clearly broken through the 12875 resistance level I have bee watching for several days now (see Thursday's's post). It was not a dramatic rise, just 46 points, giving no suggestion of a climactic end to a rally.

On the other hand there was spike in volume. As you may recall I have demonstrated that, in the past, almost every spike in volume predicts a change in direction in the market. I show this again on today's chart. However, the last volume spike signalled nothing. Also there has been a radical change in the character of the market ever since the 21st December. The violent movements, both up and down have subsided and we seem to be following a smooth upward path.

Betting that that will continue, for a while at least, is where my money is. I wish my strategy was yielding better returns at the moment but I am not losing faith. I will have to wait till Tuesday for the first inkling as to whether I am right or not.

Will we, won't we?

Just look at the charts. The Dow is struggling. Why? Greek debt, unemployment levels, inflation, quantitative easing? Perhaps? Or none of these things. The answer is that it has hit resistance. And that resistance goes back to the 2nd May 2011, nine months ago. There was a lower level of resistance that was established in July 2011. In theory it was a stronger level because the market had two goes at breaking it before it gave up and collapsed. But when the market recovered to that level (12750 on 23rd January) it took ten days to break through. We are now on day seven of the effort by the market to break through the higher level of resistance (12875) - established in May. There have been no days of exceptionally high volume. So I am holding faith. That does not mean I am right but I think the odds are on continued upward movement. I've put my money where my mouth is and have my fingers crossed. That's what this business is like. The next day or two will tell me whether I was right. My current portfolio distribution is gold and silver 9%, commodities 5%, equities 74%, cash 12%.

Last night we went to see a miserable play. It was called Neighbourhood Watch and is Alan Ayckbourn's not quite latest offering. I also saw Life of Riley, his previous play. All I can say is that he has lost his touch. Both plays were a waste of time and effort. This last had everything wrong with it and since Ayckbourn directed it, no one else can possibly be to blame. The plot did not hang together, the characters did not make sense, the period of the action was ambiguous, the set was dismal and the costumes were drab or, in one case unbearably Essex. The final moment of the play was laughable. The only positive thing I have to say is that the actors played their parts, dreary as they were, well. If it was an attempt to cock a snook at Cameron's Big Society it needed to be a lot better constructed to make its point convincingly.

We went with a friend who has been a very successful am dram producer and director and she thought its simplicity and range of characters would be very appealing to amateur companies. But please, Mr Ayckbourn spare people who pay full price for their theatre tickets from this dross.

Bull

My switch in approach from bear to bull is paying dividends. The strategies I have adopted are paying off and I now have evidence that if I had been less lilly livered through the past year I would have made lots of money  instead of losing some. I have back-tested share picking strategies, using Vector Vest, in the US the UK and Hong Kong. With the right strategies in those three territories and picking shares at the beginning of each month and selling them at the end I would have made profits of at least 50% on my capital. I also know that I would have made money in more than half of the months but the profit in the good months would have more than made up for the losses in the bad months.

So I embark on my new approach. I bought shares using the best performing strategy in the UK on 7th of February. They are slow movers (mostly in the mining sector which is notoriously volatile and is currently having a few days of weakness), nevertheless they have covered trading costs. I bought another batch on 13th February and they are already in modest profit (GSK BKG SXS AMEC BRBY). - as ever these are not recommendations but shares you might like to watch to see if my strategies are working. - The batch of shares I bought in the US on 6th Feb are also in profit with SPPR leading the way with a 13% rise. And finally I bought shares in Hong Kong last night and they have delivered a little bonanza straight away (3360 410 1128 1068 2342).

I am still running my wave theory shares. (I guess a better name for the system is surfing - I pick shares that trade in a channel and at or near the bottom.) I cashed in profits in the US on MDP (8.5%since 25 January) and am holding on to the others pro tem until I find myself some better prospects - I said on Sunday that I had screwed up when picking these shares, but until I find something better I might as well stick with them till they recover some of the losses already incurred. I have put limit price orders on all of them to reduce the emotional toll of deciding when to sell.

In the UK I cashed in ROR (2.9% since 25 Jan) and MRW (loss of 5.3% but luckily I only bought a very small stake so the cash loss was minimal). I have now refined the surfing system so I now by shares which have very good potential over a relatively few days and I only buy one which are in an uptrend. My latest buys in the UK are POLY and EVR (which has made 5.7% since Monday. I am hoping for over 8.5% and over 6% from POLY.

There is always a danger that some ghastly news will spook the market and I will have to beat a rapid retreat but I'm making hay while the sun shines. Today's picture is not a chart. Instead I show you Elk. The Aberdeen Angus bull who lives in the field at the end of our garden along with two of his sons and his mother. I think it is appropriate that he is rather muddy. My feeling about the bull market that he represents is rather muddy too.